From a pure benchmark perspective, we will have to give the market the benefit of the doubt and call it “positive” for the week. However, except for technology and healthcare stocks, all sectors were in the red. The Dow Industrial Average was virtually flat and the S&P 500 moved higher by only 0.2%. But the tech (and biotechnology) laden NASDAQ was ahead nearly 2%, as traders rotated into those two sectors with gusto. Oil continues to find new low ground in what is now a bear market for energy. Crude fell another $1.73/bbl. or 4.4% to $43.01 taking energy stocks down by 2.7% and 14% so far this year. High inventories for oil persist as Libya and the U.S. are producing more oil than needed. Telecom and utility stocks also found more sellers than buyers this week.
But the bull marches on, with the first half of the year finishing on a sufficiently positive note for the leading averages to likely begin the third quarter holding solid cumulative gains. This impressive performance reflects expectations that the Administration will seek a major tax cut before year-end. And healthcare reform is also back on the table with a new version of a Republican bill to repeal the Affordable Care Act.
As the second quarter winds down, earning’s season will provide more insight into how well corporate America is growing and becoming more productive. Generally supportive economic data and a relatively accommodative Federal Reserve are a tough combination for the bears to contest. And if this backdrop persists, the accumulation of quality equities paying increasingly higher dividends would seem a logical course. With sector rotation moving wildly from week-to-week, however, there will be major winners and losers, so diversification – as always – is key.
Here is the answer to last week’s trivia question: Bandag, now part of Japan’s Bridgestone: Operates of a nation-wide chain of tire stores, manufactures tires for the aircraft industry, recycles tire and rubber products or provides truck tire re-treading services? Answer: Provides truck tire re-treading services.
Today’s Trivia Question: The Federal Reserve recently hiked the short-term fed funds rate (the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight) to a range of 1.0% – 1.25%. What is the current “prime rate” (the rate banks charge their most credit-worthy customers)? 2.5%, 3.0%, 4.25% or 5.0%.